Whether the services rendered by the applicant can be classified as export of service as per IGST Act, 2017?

PJ/Case Law/2018-2019/3524

Case- Vserv Global (P) Ltd
Citation- Order No. GST_ARA-03/2018-19/B-59
Issue- Whether the services rendered by the applicant can be classified as export of service as per IGST Act, 2017?
Brief Facts-

Vserve Global Private Limited is a Mumbai based company which is engaged in providing back office support services to foreign clients. The clients are mostly involved in the business of trading chemicals and other products in International trade.
Following services are offered by Vserve Global:
Coordinating with suppliers and customers of clients for execution of purchase and sales contracts.
Creating and arranging all the documents (purchase order, sales contract, proforma invoice etc.) to be exchanged between clients and their suppliers/customers.
Liaising with suppliers/inspection authorities on behalf of clients.
Processing of payments for clients and arranging inspection certificates.
On behalf of clients, maintaining the employee records, payroll processing, accounting of payments made by clients etc.

Vserv Global posed a question before the Maharashtra Authority for Advance Ruling (AAR) that whether the above mentioned services provided to the clients would qualify as ‘zero-rated supply’ in terms of section 16 of IGST Act, 2017?
Applicant’s contentions: Vserv Global contended that it fulfils all the conditions required for the services to qualify as ‘export of services’ and hence, covered under the definition of ‘zero-rated supply’. It also stated that if any supply of goods between clients and their customer is facilitated due to its back office or accounting services provided to clients, then such facilitation is merely incidental to the principal supply. Further, it is providing services on principal-to-principal basis, therefore, it should excluded from the definition of an intermediary. Vserv Global stated that the facts of the case are similar to the case of GoDaddy India Web Services Private Limited where it was ruled that the services (marketing, branding etc.) provided to the oversees parent company shall qualify as export of service.
Reasons of judgment and decision:

AAR observed that all the activities performed by Vserv Global for its clients indicate that the company is engaged in ‘arranging/facilitating’ supply of goods or services between clients and their customers. Therefore, it qualifies as an intermediary.
AAR also clarified that the facts of the case in question are not similar to that of Godaddy as in the latter’s case, support services were provided on principal-to-principal basis and were provided with the sole intention of promoting the brand Godaddy US in India.
AAR held that to qualify a transaction as export of services, it has to satisfy all five components of the definition of services export simultaneously. The services, proposed to rendered by the applicant, do not qualify as ‘export of services’ and thus, not a ‘zero rated supply’ as per section 16(1) of the IGST Act, it had ruled.

Comments-In the erstwhile service tax regime, an intermediary was seen in the context of broker services and the concept was not extended to support services. Hence, it can be noted that the said ruling by the AAR is contrary to the earlier position of the government in the previous service tax regime.
Both Godaddy and Vserv Global approached the Authority of Advance Ruling with one question – would they meet the definition of an intermediary? The Delhi AAR said ‘No’ to Godaddy whereas the Mumbai AAR said ‘Yes’ in case of Vserv Global. India being a hub for export of an array of information technology enabled services, this contrary ruling has created a panic in the market.
In the matter of NES Global Specialist Engineering Services Private Ltd (NES India), which had proposed to enter into agreement with another subsidiary (NES Abu Dhabi) of its parent (NES UK), the AAR-Maha felt that the transaction was ‘Zero Rated Supply’, and also an export of service under the GST Act — which meant no GST. However, when a similar issue was raised in the matter involving Vserv (Vserve Global Private Ltd) before the same AAR, the response was quite opposite.
Further, the ruling may result in a substantial tax demand from some of industries biggest players since India is amongst the largest exporter of ITeS. Generally AAR rulings are not binding and have no precedent value; this particular ruling will cause serious confusion and may lead to unwarranted disputes.

Comments

PJ/Case Law/2018-2019/3524

Post a Comment

Query